Each week financial adviser and international best-selling author Noel Whittaker answers your questions. firstname.lastname@example.org
My wife is 53, does not have super and does not work. She gets $50,000 a year from a family trust. If she pays $20,000 of that into a super fund, can she claim a tax deduction for that amount?
As she is under 65 she can contribute to super, and because no employer is making contributions for her, she is eligible to claim a tax deduction of up to $25,000 a year. Just keep in mind that such concessional contributions are subject to an entry tax of 15 per cent.
I am aged 70 and plan to retire at the end of this year. My wife, aged 67, is retired. We have combined super of $800,000, shares outside super of $320,000 and $50,000 in term deposits. We own our home worth $1.2m and have no debts, however it appears our assets exceed the aged pension limit. I intend to draw a 1/12 super pension, $67,000 a year to live on, have interest and franking credits of $8000 a year for holidays and capital items, and reinvest dividends to grow the share portfolio. Am I on the right track?
You are certainly on the right track, and you may well find that you will start to qualify for a part aged pension as the eligibility thresholds increase due to inflation, and your capital starts to run down. Of course, if your portfolio increases because of good market returns, as well as the strategy of reinvesting income, you may well remain a self-funded retiree for the rest of your life. Just make sure you keep at least two years' planned expenses in cash so you will not be forced to cash in good shares when the market is having one of its normal downturns, and also take advice about estate planning in respect of wills and enduring powers of attorney.
I am 59 and recently retired. My preservation age is 55 and my vesting is 100 per cent. How much of my super can I access without incurring a charge or paying tax on the withdrawal - I am under the impression I can withdraw the total amount. My super fund says I can withdraw a maximum of $180,000 only, and the balance after I turn 60, otherwise I have to pay tax on the balance if I withdraw before 60.
Your super fund is spot on - until you reach 60 only the first $180,000 of the taxable component can be withdrawn tax-free. I wonder why you wish to quit the superannuation system -make sure you check out the taxation position before you make any decisions. Unless your balance is relatively small, you may be better to leave the money inside super as long as possible. Remember, money inside super is not counted by Centrelink until you reach pensionable age.
When cash fixed interest investments are compared with balanced super fund investments, historically a balanced fund has significantly outperformed cash in the long term because of the effect of inflation and tax on the cash investment. However, if a retiree invested in cash and his taxable income did not exceed the tax-free threshold and interest was reinvested, would he be much worse off than keeping the investment in super, where returns are subject to 15 per cent tax, fees, and volatility?
For most retirees tax should not be an issue - all their assets within super are tax-free once the fund is in pension mode, and the generous Senior Australian Pensioner Tax Offset makes assets outside super tax-free for most. Therefore, the issue turns on which asset class will produce the best gross return - cash or shares. From my experience, money in shares wins hands down every time over the long term, especially when franking credits are taken into account. Remember to stay diversified and take good advice if you are still unsure.
My husband and I, aged 76 and 74, have been advised to change our individual shareholdings to joint names to make the transfer of ownership on the death of one partner more straightforward and to prevent triggering capital gains tax. Do you agree with this advice and, if so, how simple is it to arrange such transfers? Between us we have 21 shareholdings we would merge.
Any assets moved to joint ownership now will trigger capital gains tax immediately, but unless you have a family that intend to fight your will, I don't see that you have a big problem. If the will leaves the assets to the surviving spouse, that person will inherit the shares at the cost base of the deceased.
Share trust an option for young saver
I am a 17-year-old male who left school a bit over a year ago. I have an average income of $350 a week. I have managed to save $10,000 and have no debt. I was wondering what I should do with the money I've saved - should I invest into a small block of land or into the stock market?
It's almost impossible for a person under 18 to legally buy assets such as property and shares, but you should congratulate yourself on the mature attitude you have taken to building wealth. Remember, at this stage in your life it is not the amount you invest as much as the habits you get into. I suggest that once you turn 18 you start off with a small investment in an Australian share trust. You could add to it each month basis and cash it in if you need money for a car or a trip.